Are Mortgage Rules Hurting Home Ownership?
A recent GAO report points out that a “key challenge” of the Dodd-Frank Act mortgage regulations is to balance the goals of increasing borrower protections while not decreasing access to credit. How are regulators doing so far?
A report released by the Commerce Department yesterday demonstrates just how much homeownership rates have tumbled over the last decade. The national home ownership rate stood at 64.4 in the fourth quarter of 1992 and reached its zenith of 68.4% in the first quarter of 2007. According to the numbers released yesterday, the homeownership rate now stands at 63.4%. The decline is even more dramatic for minorities. In the third quarter of 2006, the homeownership rate for African-Americans was 48% and 49.7% for Hispanics. Today those rates stand at 43% for African= Americans and 45.4% for Hispanics.
Do these declines reflect inevitable retrenchment following a housing bubble, as I would suggest, bad public policy, or racial bias in lending? This is going to be the most important and hotly debated public policy question over the next decade (surpassed in importance to the American public only by whether or not Tom Brady received a just punishment for his deflated balls?). How it is answered will impact your credit unions’ operations for years to come.
For example, with the Supreme Court upholding the use of disparate impact analysis, I guarantee you that judges will one day have to decide if the CFPB’s QM rules have a disparate impact on minorities. Given how aggressively the CFPB is utilizing disparate impact analysis, it’s even possible that the CFPB may one day make mortgage amendments based on its own findings about the impact QM rules are having on homeownership for minorities.
Let’s say you believe that all borrowers are being victimized by bad policy, irrespective of race. Is the key to increase legal protections provided to lenders so that the cost of lengthy loss mitigation regimes and foreclosures don’t get backed into home purchase prices? Maybe we need a more vibrant secondary market? If so, should we scrap Fannie and Freddie and have a single entity bundle mortgage loans or should the government get out of the secondary market all together?
All of these are legitimate questions and, even in Washington, facts matter. Fortunately, we are in the beginning of the QM experiment and policymakers can develop statistical models to help answer them.
This is why the GAO report released the other day should serve as a wakeup call to industry stakeholders, Congressmen and regulators regardless of what side you take in the housing debate. The GAO concluded that it is still too soon to determine what impact Dodd-Frank was having on the housing market but that regulators, including the CFPB, still have not adequately prepared for effective “retrospective reviews” of Dodd-Frank’s impact. It recommends that all the relevant federal agencies, including the CFPB, finalize plans to conduct such reviews.
To me this seems like a commonsense suggestion.
As for that other burning issue of the day, I too am outraged by the NFL’s decision to uphold its four-game ban against Tom Brady for his role in deflating footballs used in a playoff game against the Colts last season. There’s something distinctly un-American when multi-millionaires can’t break rules with impunity and destroy incriminating evidence. If the NFL’s approach to law enforcement was implemented in the banking world, where would investment banking be today?